Bookkeeping & Payroll Management - Introduction to Bookkeeping

Bookkeeping & Payroll Learning Outcomes

• Apply principles and practices of bookkeeping and related terminology.
• Read, interpret, and produce day books, ledgers, closing balances, trial balances, cash flow statements, and financial statements.
• Describe the payroll process, its terminology, and applicable legislation.
• Set up new employees, determine their tax credits and cut-offs, PAYE, USC.
• Use payroll software to process wages and salaries.

Course Outline

This course examines Bookkeeping and Payroll, covering:

1. Introduction to Bookkeeping.
2. Double Entry and Ledgers.
3. Financial Statements.
4. Financial Reporting Framework & Cash Reporting.
5. Accounting Systems & Strategic Financial Management.
6. Introduction to Payroll, Terminology, and Legislation.
7. The Payroll Process: PAYE, PRSI, USC, and PAYE Modernisation.
8. Introduction to Computerised Payroll Systems.
9. Entering Payroll Data on Thesaurus.
10. Additional Functionality of Thesaurus.

Assessment

• Bookkeeping
  • Bookkeeping Quiz (Multiple Choice): 25%
  • Statement of Cash Flow Quiz: 25%
• Payroll
  • Payroll Legislation Quiz: 5%
  • Payroll Process Quiz: 5%
  • Payroll Software Exercise: 40%

Introduction to Bookkeeping

• Introduce the concept of bookkeeping and explain how business transactions translate to financial information

Learning outcomes

• Explain what Bookkeeping is
• Explain the terminology associated with Bookkeeping
• Day Books: What are they?
• Books of Prime Entry: How do they translate to accounts?

Introduction to Bookkeeping

Introduction

• Accounting
• Bookkeeping
• Books of Prime Entry

Introduction

• Bookkeeping involves recording an organization’s financial transactions.
• This enables organizations to track all information on its books to make key financing decisions.
• Bookkeepers are individuals who manage the financial information for organizations.
• Without a bookkeeping function, organizations would be unaware of their current financial position and the transactions that occur within the business.
• It is very important that a business has a system to record and monitor their financial transactions.
• It is essential this information is accurate and up-to-date to ensure the financial position reported is accurate.
• The system adopted needs to be able to record transactions in a manner that will provide management with the information required for decision-making purposes.
• This information will form the basis for the final accounts of the business – essential for audit, tax, and company law purposes.

Accounting Definition

• The recording, summarizing, analyzing, and reporting of all the financial transactions entered into by a business over a period of time.

Definition of Accounting

1. Transactions are recorded in a timely manner (Recording).
2. The recorded transactions are summarized (Summarizing).
3. From summaries, the information is organized in a useful format, i.e., financial statements are produced.
4. Financial Statements and other information are analyzed to help in Decision Making (Analyzing).

Accounting

• Accounting is made up of two elements:
  1. Bookkeeping: Recording Business Transactions
  2. Presentation of the information in summary format: Financial Statements

Business Transactions

• Types of transactions undertaken by a business include:
  • Buying goods for cash and on credit.
  • Selling goods for cash and on credit.
  • Paying bills.
  • Buying buildings and equipment.
  • Owner takes money.
  • Borrowing money from a bank.
  • Repaying money to a bank.
  • Paying suppliers.

Bookkeeping

• Bookkeeping is the recording of transactions carried out in the business.
• Transactions are recorded in ledger accounts using double-entry bookkeeping.
• Transactions are recorded on the basis of source documents.

Bookkeeping Source documents

• When a transaction takes place, it is usually recorded on a document.
• This may be an invoice, a receipt, a purchase order, or a sales order.
• The details of the transaction contained in the document need to be recorded and summarized so the business can access the information.
• These source documents are used to input information into the accounts and provide the details to help understand what happened.

Bookkeeping

• The information from the books of prime entry is analyzed, summarized, and then presented in the appropriate form in the financial statements through the general ledger.
  • Example: Bill Ltd. sells €50 of goods to Brian Ltd. on credit, and Bill Ltd. sells €30 of goods to Ann Ltd. on credit.

Bookkeeping

Sales Day Book

• Ann: €30
• Brian: €50
• Total: €80

General Ledger

• DR Receivables (Sales) Ledger Control Account: €80
• CR Sales (P&L): €80

Subsidiary Ledger

• DR Individual Customer Accounts in the Receivables Ledger CR
  • Ann: €30
  • Brian: €50

Books of Prime Entry

• In a finance system, the books of prime entry are where transactions entered into by a business are recorded for the first time, before they are entered into the separate ledger accounts.
• They are made up of a number of “books” that capture transactions in a structured way.
• The term "book" dates back to a time when accounts were recorded using physical books and ledgers.
• Transactions are consolidated and analyzed in the book of prime entry and posted to ledger accounts.
• Ledger accounts are summarized in the financial statements.
• A source document is an original record that contains the detail that supports a transaction that has been entered in an accounting system.
• A source document is evidence that a transaction or event took place in the business.

The main source of documents are:

• Sales Invoice
• Purchases Invoice
• Credit Note Issued
• Credit Note Received
• Debit Note
• Cheque Stub
• Statement of Account
• Receipt
• Payslip
• Bank Statement

Books of Prime Entry

Sales Invoice

• A sales invoice is a source document issued to credit customers showing full details of goods sold to them. It will include: the name and address of customer, a description of goods, no of units, unit price, any trade discount and sales tax (VAT) applied.

Purchases Invoice

• A purchase invoice is a document received from suppliers showing full details of goods purchased from them. It is an evidence of goods purchased from supplier. It may include: name and address of supplier, a description and price of goods purchased, discount received from supplier and sales tax (VAT) charged.
• Sales Invoice
• Purchases Invoice
• Credit Note Issued
• Credit Note Received
• Debit Note
• Cheque Stub
• Statement of Account
• Receipt
• Payslip
• Bank Statement

Books of Prime Entry

Credit note issued

• A customer may return goods if they are found to be damaged or if the wrong order was delivered. A credit note is a document issued to customers showing full details of goods returned by them. It is an evidence of sales return by customers

Credit note received

• Similarly, goods may be returned to suppliers by the trader if it is damage. A credit note will be received by suppliers to show details of goods returned to them. A credit note received is an evidence of purchases return to suppliers

• Sales Invoice

• Purchases Invoice

• Credit Note Issued

• Credit Note Received

• Debit Note

• Cheque Stub

• Statement of Account

• Receipt

• Payslip

• Bank Statement

Books of Prime Entry

Debit note

• A debit note is a document sent by the customer to a supplier asking for allowance for unsatisfactory goods. It may also be sent to the business to inform of any misstatements/ errors or shortages/overcharges made in their account

Cheque stub

• Where cheques are used by a business to make payments, cheque stubs act as the source documents to make entries in cash book. A cheque stub is the part of the cheque kept by the payer as a record of the transaction. It is evidence or a record that the cheque was written and the payment was made

• Sales Invoice

• Purchases Invoice

• Credit Note Issued

• Credit Note Received

• Debit Note

• Cheque Stub

• Statement of Account

• Receipt

• Payslip

• Bank Statement

Books of Prime Entry

Statement of account

• At the end of each month the trader will send a statement of account to its customers showing them the amount due. It is simply a summary of the customer’s transactions clearly showing sales, returns, receipts and balance due at end

Receipt

• A receipt is a source document to record cash received by a business. It indicates the date the payment was received, the name of the person or business from whom the payment was received, and the amount of the payment

• Sales Invoice

• Purchases Invoice

• Credit Note Issued

• Credit Note Received

• Debit Note

• Cheque Stub

• Statement of Account

• Receipt

• Payslip

• Bank Statement

Books of Prime Entry

Payslip

• This is a legal document sent by the business to its employees showing them their Gross pay, deductions / Tax and net pay during a particular period. It is a proof that wages and salaries have been paid to employees

Bank statement

• This is issued by the bank to the trader each month showing cheques deposited and withdrawn during the month. The bank statement is used to reconcile any difference in the cash book of the business.
• Sales Invoice
• Purchases Invoice
• Credit Note Issued
• Credit Note Received
• Debit Note
• Cheque Stub
• Statement of Account
• Receipt
• Payslip
• Bank Statement

Books of Prime Entry

Note: Where a business is registered for sales tax, these books will be divided into gross net and sales tax amounts

Books of Prime Entry

• Entry of a transaction to a book of prime entry does not record the double entry required for that transaction.
• The book of prime entry will be, however, the source for double entries to the ledger accounts.
• The double entry arising from the book of prime entry will be recorded periodically (daily, weekly, monthly) depending on the volume of transactions.

Exercise

Activity

Place the following source documents with the appropriate book of prime entry and explain the nature of the transaction:

• Sales invoice for €100 to ABC Ltd.
• Sales credit note for €40 to ABC Ltd.
• Received a cheque for €60 from ABC Ltd.
• Purchase Invoice for Stationery worth €25 from PM Products Ltd.
• Cheque stub indicating a payment of €25 to PM Products Ltd.
• Bank statement direct debit payment of €350 to IM Properties for Rent

Accounting Systems

Accounting Systems and Information:

• Ledger accounts are used to generate a list of balances on all accounts: the trial balance
• The financial statements are produced using the trial balance
• This means the figures reported in the financial statements can be traced back to the ledger accounts in the trial balance and ultimately to the individual transactions in the books of prime entry

Accounting Systems

Accounting Systems and Information:

• Information systems produce reports from the accounting information facilitating the running and control of a business.
• To ensure the information is meaningful, the data must be input and analysed in a timely manner.

Accounting Systems

Computerised Systems

• A computerised accounts system collects, stores and processes financial and accounting information
• They use modules to replicate the process of gathering financial information (in a similar manner to books of prime entry) from source documents
• Modules include: customers (sales, returns and receipts), suppliers (purchases, returns and payments), banks (receipts and payments) and nominal (journals)

Accounting Systems

Computerised Systems

• It creates a method for tracking accounting activity in conjunction with information technology resources
• Financial reports produced can be used internally by management or externally by other interested parties
• Computerised accounting systems are designed to support all accounting functions and activities

Double Entry Bookkeeping

Ledger Accounts:
Within any accounting system there are accounts of each type of:

• Asset
• Liability
• Capital
• Income
• Expenditure

Assets, Liabilities and Capital = Statement of Financial Position (SFP)
Income, Expenditure = Statement of Profit or Loss (P&L)

Ledger Accounts

• Assets. A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits
• Liabilities: A present obligation of the entity to transfer an economic resource as a result of past events. An obligation is a duty or responsibility that the entity has no practical ability to avoid.
• Capital: The residual interest in the assets of the entity after deducting all its liabilities

Ledger Accounts

• Income: Sales from a business’s core activity. They result in an increases in assets or decrease in liabilities.
• Expenses: Costs associated with the business. They result in a decrease in the assets or an increase in liabilities.

Ledger Accounts

• A T-account a term used for a set of financial records that uses double-entry bookkeeping.
• It describes the appearance of the bookkeeping entries.
• First, a large letter T is drawn on a page. The title of the account is then entered just above the top line, while underneath debits are listed on the left and credits are recorded on the right, separated by the vertical line of the letter T.
• In double-entry bookkeeping all financial transactions are considered to affect at least two of a business's accounts. One account will get a debit entry, while the second will get a credit entry to record each transaction that occurs.

Ledger Accounts

• The credits and debits are recorded in a general ledger, where all account balances must match.
• The visual appearance of the ledger journal of individual accounts resembles a T-shape, hence why a ledger account is also called a T-account.
• A T-account is the graphical representation of a general ledger that records a business’ transactions. It consists of the following:
  • An account title at the top horizontal line of the T
  • A debit side on the left
  • A credit side on the right

Ledger Accounts

Double Entry Bookkeeping

Double Entry Bookkeeping:

• The fundamental concept to double entry bookkeeping is that of dual effect:
• Every transaction has an equal and opposite effect – Debit and Credit
• Eg: If a business pays rent of €200, the double effect is
• DR Rent (Expense in P&L) €200
• CR Cash (Asset in SFP) €200

Double Entry Bookkeeping